Question

The following transactions apply to Andrews Sales for Year 1:

1. The business was started when the company received $49,000 from the issue of common stock.
2. Purchased equipment inventory of $175,500 on account.
3. Sold equipment for $206,000 cash (not including sales tax). Sales tax of 7 percent is collected when the merchandise is sold. The merchandise had a cost of $131,000.
4. Provided a six-month warranty on the equipment sold. Based on industry estimates, the warranty claims would amount to 4 percent of sales.
5. Paid the sales tax to the state agency on $156,000 of the sales.
6. On September 1, Year 1, borrowed $19,500 from the local bank. The note had a 6 percent interest rate and matured on March 1, Year 2.
7. Paid $5,600 for warranty repairs during the year.
8. Paid operating expenses of $55,000 for the year.
9. Paid $125,300 of accounts payable.
10. Recorded accrued interest on the note issued in transaction no. 6.

A. Prepare the income statement for Year 1.

B. Prepare the balance sheet for Year 1.

C. Prepare the statement of cash flows for Year 1.

D. What is the total amount of current liabilities at December 31, Year 1?

Answer 1

Income statement
For Year 1
Sales		$206,000
Less: cost of sales		131000
Gross profit		$75,000
Less: operating expenses
Warranty expenses (206000*4%)	8240
Operating expenses	55000	63240
Operating income		$11,760
Interest expenses (19500*6%*4/12)		390
Net Income		$11,370
ans B
Balance Sheet
For year ended 1
Assets
Current Assets
Cash (49000+206000+(206000*7%)-(156000*7%)+19500-5600-55000-125300	92100
Inventory (175500-131000)	44500
Total Current Assets	136600
Total Assets	136600
Liabilities & Stockholder Equity
Current Liabilities
Accounts payable (175500-125300)	50200
Sales tax payable (206000-156000)*7%	3500
Interest payable	390
Bank loan payable	19500
Warranty payable 8240-5600	2640
Total current Liabilities	76230
Stockholder Equity
Common stock	49000
Reatined Eranings	$11,370
Total Stockholder Equity	$60,370
Total Liabilities & Stockholder Equity	$136,600
ans 3
Statement of cash flow
Cash flows from operating activities
Collection from customers		$220,420
Payment to accounts payable	(125,300.00)
Payment of operating expenses	-55000
Payment of warraty	-5600
Payment of sales tax	-10920
		(196,820.00)
Net cash from operating activities		23,600.00
Cash flows from investing activities	$0
Cash flows from financing activities
Issue of Common stock	49000
Issuance of bank loan	19500	68,500.00
Net cash from financing activities		68,500.00
Net Increase in cash and cash equivalents	92,100.00
Cash and cash equivalents at beginning of period		-
Ending Balance		92,100.00
ans 4
Current Liabilities
Accounts payable (175500-125300)	50200
Sales tax payable (206000-156000)*7%	3500
Interest payable	390
Bank loan payable	19500
Warranty payable 8240-5600	2640
Total current Liabilities	76230	answer
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